Retrofit connectivity and ADAS revenue potential for carmakers and suppliers, investigated by Eric Volkman.

It almost feels like car technology is going obsolete at an ever-quickening pace. It’s no wonder –  the many advances in assisted and automated driving, not to mention connected car features, are coming thick and fast onto the market.

Because of this, it seems as if fully-loaded, state of the art models from only a few years ago are well short on the latest mod cons. Your 2015 Chevrolet Malibu didn’t come equipped with that Teen Driver feature that lets you monitor your kids’ driving habits, for example.

So, enter the aftermarket. The more ADAS and connected car features become standard on the latest auto models, there stronger the demand to obtain those solutions for older cars. So, retrofitting is a big business and it’ll probably only get bigger in the coming years.

There are numerous trends in this game and many players are involved in it. Here, then, is a snapshot of the current state of the market, a look at the trends and a few of the players involved in the kitting out of veteran models. It’s a drive-by tour of the aftermarket, if you will. 

Smartening up

The aftermarket is already sizeable. According to James Fish, vice-president of business development for solutions maker Lemur Monitors, it’s worth around $15Bn (£12.3Bn). That’s an ‘all-in’ figure, which includes every segment of the market including infotainment options, diagnostics, driver assistance, etc.

One reason the aftermarket space is so big is because many types of companies are participating in it, from single-product solutions makers to massive, well-capitalised carmakers. A prominent example of the latter is Ford, which at the beginning of this year rolled out its SmartLink solution, developed in conjunction with Delphi Automotive and Verizon. As with a great many aftermarket products, SmartLink’s functionalities are delivered through an OBD II dongle. Plugging in the dongle allows a Ford owner to set up a 4G WiFi hotspot and, through a smartphone connection, he or she can remote-start the vehicle, lock and unlock the doors, and locate it if they can’t quite remember which street they parked it on. SmartLink covers a great many of the Fords currently prowling the roads; it can be deployed in the manufacturer’s Ford and Lincoln models between the years 2010 and 2016.

Note that the SmartLink’s functionalities are the more or less standard and not-very-advanced ones in the connected car world; Ford’s fancy dongle won’t magically conjure a dashboard screen, say, or a set of proximity sensors. Thus, much of today’s aftermarket consists of these relatively basic and straightforward features. They also tend to be the ones that have an obvious and compelling means of producing revenue. “The early [aftermarket products] are focused on where the money is,” says Fish. “So you see millions of connected vehicles for insurance companies, and they are all trying to extend the profile of those services, but right now it is quite preliminary and explorative.”

Roger Lanctot, associate director of the global automotive practice at researcher Strategy Analytics, has a similar view. “The devices that have any ‘traction’ in today’s aftermarket have usually found success by attracting either enthusiasts or by fulfilling a need to prevent vehicle theft or to participate in usage-based insurance programmes,” he says. “Another popular niche in different regions (UK, South Africa, Italy, Brazil) are connected aftermarket devices with cameras for fraud prevention.”

UBI is one segment that has really taken off in developed markets and it’s not hard to see why. A dongle that draws basic data on a user’s driving habits provides an obvious business advantage to the insurance provider, allowing it to much better judge the risk profile of the driver. In turn, a customer that doesn’t use their vehicle on a constant basis and has a clean driving record has the chance to save on his or her premium payments. Ideally, it’s a win for both insurer and client and a relatively easy solution for the provider to design.

Another popular product segment also falls into the ‘basic’ category – in-car diagnostics. After all, diagnostics are the information that OBD ports were originally designed to convey. These days, well-connected recent vehicle models funnel this data into the car’s on-board information system, giving drivers what they need to know with a few clicks of a button, or taps on the touchscreen. On the aftermarket, this can be provided using a combination of dongle and a user’s smartphone; a few rounds of swipe-and-tap bring up the needed information on the device.

All aboard!

One factor that makes the aftermarket attractive is that the category’s products can benefit many different types of customer. Take those diagnostics solutions. In addition to the benefits they confer on individual drivers, they can also assist organisations. Dealerships and repair shops, for example, can monitor a car’s health remotely through a connected dongle solution, notifying the owners when maintenance is required, or even assisting from afar if a mechanical problem occurs on the road.

This is a potential revenue generator in its own right but, if managed well, it can also help build customer loyalty and retention. In the case of a dealership, such a well-serviced customer would likely be inclined to take his or her vehicle to its parts and service section whenever a fix is in order. That can be a real boon to that firm’s business – according to tech consultancy and connected car solutions maker Wipro, parts and service typically comprise 12% of revenue for dealerships and a meaty 40% of their profit.

Such products also have the clear potential to be winners for car hire companies. Driving statistics, operator behaviour and location can be tracked in real time from the confines of the office. While on the road, monitoring can determine whether the vehicle is being driven safely and whether it is remaining within the geographical limits set by many hire companies. This data can then help the company adjust pricing to reflect how the car is being operated. In a worst-case scenario, should a vehicle break down or crash, the company would have a quick read on the nature of the problem and the location of the afflicted car. Assistance can then be directed there efficiently, or – as in the dealership/repair shop case cited above – delivered remotely. Finally, a car hire company that has this pack of data at its fingertips can process a rental quickly once the vehicle returns to the lot; no more wasting employee time and capacity taking direct odometer and fuel gauge readings.  

Another robust customer segment for the aftermarket is vehicle fleet operators – a classic market for connected car solutions. The utility of a product that can track data in individual vehicles, and across the broader fleet, is obvious. A good aftermarket fleet management product can help supply and disseminate a large volume of crucial data, including but certainly not limited to trip logging, routing, and that old favourite, driver behaviour.

Fleet operators have been happy to pay for such solutions ever since they’ve been available; the difference now is that they’re powerful and cost-effective enough to be an option for fleet managers even with limited budgets. Danlaw, a USfirm that sells a dongle-based solution called DataLogger, says now is an ideal time for its wares. “Traditional implementations required a large custom device with minimal functionality and no connectivity to the vehicle communication buses,” the company writes in its Connected Car Vertical Markets paper. “Additionally, an expensive and time consuming installation process was necessary.” That’s no longer the case; many fleet solutions these days are plug and play, dongle/smartphone combinations such as DataLogger.   

Specialty device makers like Danlaw are active in this segment, as one would expect. Another set that has also dived into it, for understandable reasons, is insurance providers. Big European insurer Zurich, for example, has its own suite of products aimed squarely at fleets. This is Zurich Fleet Intelligence, which the company says “combines the strength of vehicle telematics systems with the power of extensive reporting tools to turn raw data into meaningful insights”.

Not so fast?

As with anything associated with connected cars, the aftermarket has its own potholes and obstacles impeding the journey. One of the biggest ones is security, or the lack thereof. The entire digital world is vulnerable to hacking; witness the many incidents of data breaching in some of the world’s top companies recently. Many believe the connected car is even more susceptible to malicious intent, a feeling reinforced by a memorable 2015 article from Wired magazine that detailed how easy it was for two hackers to remotely take control of a connected Jeep Cherokee. Other frightening examples abound.

Some believe that two years hasn’t made much of a difference to the safety of auto networks, native or aftermarket. Adding to this is the proliferation of what are essentially personal broadcasting hardware items in aftermarket solutions. “Until better cybersecurity measures are out on the street it does not make sense to me to take a very hackable device like a mobile phone and effectively add an antenna to an older vehicle's very exploitable system,” says Donny Seyfer, chairman of the Automotive Service Association in the US.

It's not only the experts that have this fear; the broader driving public seems to worry about it too. A 2016 poll conducted by Kelly Blue Book found that the vast majority of respondents – 62% agreed with the statement that ‘I fear cars in the future will be easily hacked’. Only 26% of those poll disagreed, with 12% taking a neutral stance. Further, 73% of the people asked by Kelly Blue Book believed that vehicle hacking in the future will be either a ‘moderate’ or a ‘serious’ problem.

As mentioned previously, another pothole in the road is costs. While many connected car solutions can be delivered at a reasonable price point, some of the most attractive ones packed into current models are out of reach. Even a mid-level offering on the latest vehicles, such as a rear-facing camera, would require an invasive retrofit on an older car.

The Seyfer gives a good example. “Let’s just say I have a customer with a ’69 Mustang and a blind spot detection system were available for it,” he says. “For a truly integrated system, you are talking about removing the interior, a significant number of components and wiring to hide and potentially drilling holes to mount cameras or radar and then how do you calibrate the system specific to each vehicle it might be installed on?”

Also, in an ever-developing aftermarket with new products and functionalities constantly becoming available, it can be a challenge to price a solution attractively. Producers, naturally, want to continue to draw revenue from their offerings, rather than ring up a one-time sale for a dongle. Yet this leads to questions about the value of paying for a subscription, or shelling out money for extra services not included with the original package.

“I’m not impressed with consumer devices that require a subscription,” says Fish. “It’s pretty clear these companies have not done a proper consumer segmentation nor have they determined the value propositions via proper market research.”

Taking their toll

Despite these speed bumps, the aftermarket is a big space with eager clientele. As such, it offers plenty of opportunity for motivated solutions providers. It’s going to be interesting to see which sorts of companies will be the big winners here. Automakers, telematics firms, ambitious specialty solutions makers and a great many entities in between are selling aftermarket products.

Mike Carroll, Danlaw’s vice-president sales – connected car, believes the ‘Little Guys’ ultimately have the advantage. “OEMs can’t get out of their own way,” he says. “From the time a car company picks up a pencil to design the next car until the day it gets crushed in the junkyard is about 16 years. The aftermarket can iterate 16 different offerings in that time. [The OEMs] just can’t keep up with what people want.”

Yet, the connected car world is a young one and is developing as rapidly as any segment in auto technology these days. It is still very much anybody’s game and there are certainly a lot of clever, determined players competing in it now.

[Tele.Volkman.2017.02.16]

TU-Automotive Detroit 2017

07 Jun 2017 - 08 Jun 2017, NOVI, USA

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